Fiscal sustainability - Institut für Weltwirtschaft und Internationales

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Fiscal sustainability: the origin, development and
nature of an ongoing 200-year old debate
Philippe Burger
Berichte aus dem Weltwirtschaftlichen Colloquium
der Universität Bremen
Nr. 98
Hrsg. von
Andreas Knorr, Alfons Lemper, Axel Sell, Karl Wohlmuth
Universität Bremen
Fiscal sustainability: the origin, development and
nature of an ongoing 200-year old debate
Philippe Burger 1
Andreas Knorr, Alfons Lemper, Axel Sell, Karl Wohlmuth
(Hrsg.):
Berichte aus dem Weltwirtschaftlichen Colloquium
der Universität Bremen, Nr. 98, März 2005,
ISSN 0948-3829
Bezug: IWIM - Institut für Weltwirtschaft
und Internationales Management
Universität Bremen
Fachbereich Wirtschaftswissenschaft
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D- 28334 Bremen
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E-mail: [email protected]
Homepage: http://www.iwim.uni-bremen.de
1
Dr. Philippe Burger is Professor at the Department of Economics of the University of the Free
State, Bloemfontein, South Africa. This paper largely represents an extract from Burger, P.
2003. Sustainable fiscal policy and economic stability: Theory and Practice. New Directions in
Modern Economics Series. Edward Elgar: Cheltenham.
Abstract
Since the late 1980s and early 1990s, fiscal sustainability surfaced as an increasingly im portant issue because of the substantial increase in the public debt/GDP
ratio in many countries. However, even though the term ‘fiscal sustainability’ is of
relatively recent vintage (the latter quarter of the 20th century), the concerns that lie
at its heart, namely the solvency of government and the impact of that solvency (or
lack thereof) on the rest of the economy, are not, stretching back several centuries.
This paper shows how a two hundred year old debate about these concerns,
cloaked in different guises and starting with Adam Smith’s critique of Melon, continues to this day. The paper also considers the views of, among other, Ricardo, Ma lthus, Mill, Keynes, Lerner, Domar, Hansen, Blanchard and Ball and Mankiw. The
discussion seeks answers to the following questions: What is fiscal sustainability all
about? How sustainable are fiscal policies internationally? How did the debate on
fiscal sustainability and government solvency evolve? How does fiscal sustainability
relate to older debates on government dissaving and the longstanding concern
about the size of public debt? In answering these questions the paper indicates that
rival interpretations did and still coexist and that the debate is by far not over.
Key words
Fiscal sustainability (Sustainable fiscal policy), Public debt, Dissaving, Keynes,
Adam Smith, Ricardo, Functional Finance.
Table of Contents
Page
1 INTRODUCTION
2 WHAT IS FISCAL SUSTAINABILITY ALL ABOUT?
2.1 Debt and deficits
2.2 Dissaving as the cause of fiscal unsustainability: old wine in new
bottles?
3 HOW SUSTAINABLE ARE FISCAL POLICIES INTERNATIONALLY?
4 THE EVOLUTION OF THE THEORY OF FISCAL SUSTAINAB ILITY
4.1 Early views
4.2.Keynes and the changing view on public debt – the 1930s and 1940s
4.3 The modern mainstream view: the return of classical morals
5 RECURRING THEMES THAT EMERGE FROM THE 200-YEAR OLD
DEBATE
6 CONCLUSION: THE ORIGIN, DEVELOPMENT AND NATURE OF THE
DEBATE
BIBLIOGRAPHY
APPENDIX 1
APPENDIX 2
1
3
3
6
8
12
13
15
18
22
24
26
31
32
Tables
Table 1 Countries that received attention with regard to the fiscal sustainability
issue
2
Figures
Figure 1
Figure 2
Figure 3
Figure 4
The interest rate – growth rate gap for the G7 countries
Gross public debt/GDP of G7 countries
The US public debt/GDP ratio
The (r – g) gap in the US
9
10
11
11
1
INTRODUCTION
Since the late 1980s and early 1990s, fiscal sustainability has drawn increased attention
(see Table 1 below). This may be attributed to the substantial increase in the public
debt/GDP ratio in many countries. Blejer and Cheasty (1993:9) state that the debt crisis
highlighted the importance of long-run government solvency. In addition, there was a shift
from Keynesian to classical orientated economic thinking and its conservative fiscal
stance. As a result, many modern mainstream economists currently favour balanced
budgets and even budget surpluses. International organisations such as the International
Monetary Fund (IMF 1995; 1996) and international credit agencies (Adelzadeh 1999)
support this view.
However, even though the term ‘fiscal sustainability’ is of relatively recent vintage (the
latter quarter of the 20th century), the concerns that lie at its heart, namely the solvency of
government and the impact of that solvency (or lack thereof) on the rest of the economy,
are not, stretching back several centuries. This paper shows how a two hundred year old
debate about these concerns, cloaked in different guises and starting with Adam Smith’s
critique of Melon, continues to this day. The paper also considers the views of, among
other, Ricardo, Malthus, Mill, Keynes, Lerner, Domar, Hansen, Blanchard, Ball and
Mankiw, Galbraith and Darity and Arestis and Sawyer. The discussion seeks answers to
the following questions: What is fiscal sustainability all about? How does fiscal sustainability relate to older debates on government dissaving and the longstanding concern
about the size of public debt? How sustainable are fiscal policies internationally? How did
the debate on fiscal sustainability and government solvency evolve? In answering these
questions the paper indicates that rival interpretations coexisted and, indeed, still coexist
so that the debate is by far not over. Moreover, the paper argues that the debate is not
just a two-sided debate. Rather, it developed into a range of distinguishable views, some
closely related and others not. Some economists might deplore an absence of consensus
formation in economic debates, fearing that such a situation endangers the scientific credentials of the discipline. Such a fear does not imply that no debate should take place,
but rather that debates should be settled at some point in time, leaving economists free
to explore other unresolved issues. Instead, as this paper indicates, some debates continue and indeed, yield a proliferation of views, with no consensus in sight. However, the
idea that scientific debates should necessarily be resolved in the formation of a consensus might not be a good description of what economists do. Indeed, this paper argues
that in the case of the debate about fiscal sustainability a better description of this debate
is one that portrays the development of the debate as an evolutionary development and proliferation of views. Some of these views are at times dominant, some are strong and
some weak.
1
Table 1 Countries that received attention with regard to the fiscal sustainability issue
Country or group of
countries
OECD countries
G7 countries
Emerging
market
countries
USA
Europe
Belgium
The Low Countries
Spain
Sweden
France
Italy
Greece and Ireland
India
Tanzania, Zimbabwe,
Namibia, Kenya, Botswana,
Ethiopia,
Ghana, Kenya, Malawi, Mauritius and
others
South Africa
Author
Leibfritz et al. 1994; Lane 1993; Corsetti and Roubini
1991
Ball and Mankiw 1995
Callen et al. 2003
Bohn 1998; Ball et al. 1998; Congress of the US 1996;
Tanner and Liu 1994; Quintos, 1995; Cebula and Rhodd
1993; Hakkio and Rush 1991; Joines 1991; Heilbroner
and Bernstein 1989; Kremers 1989; Miller 1983
Vanhorebeek and Van Rompuy 1995; Caporale 1993;
Blanchard et al. 1985
Vuchelen and Rademakers 1995, 1996; Vuchelen 1985,
1993; De Grauwe 1993, 1994; Dornbusch and Draghi
1990; Heyndels and Vuchelen 1986; 1988; Lejeune and
Vuchelen 1985
Moerman and Vuchelen 1985
Gonzalez-Paramo et al. 1992
Lachman 1994
Cordier and Enfrun 1992
Gaiotti and Salvemini 1992; Giavazzi and Spaventa
1988; Dornbusch and Draghi 1990; Masera 1987
Gagales 1991; Dornbusch and Draghi 1990
Parker and Kastner 1993
Gordon 1997; Osoro 1997; Taiwo 1994
Heyns 1993a, 1993b; ABSA 1996; Roux 1993; Van der
Merwe 1994; Schoeman 1994; Cronje 1995, 1998; Fourie and Burger 1999; 2000
The structure of this paper comprises the following sections: Section 1 presents a brief
overview of the theory of fiscal sustainability. As such, it provides the reader with a background to understand the historical development of the debate. In addition to presenting
the technical framework used to analyse fiscal sustainability, the section also considers
the link between fiscal sustainability and government dissaving. This helps the reader to
understand the relation between the debate on fiscal sustainability and the closely related
debate on crowding-out. Section 2 of the paper considers the sustainability of fiscal policies internationally over the last two and a half decades, while section 3 presents the historical overview of the debate starting with the early views of, among others, Adam Smith.
Section 4 draws out some recurring themes from this historical overview, while section 5
concludes.
2
2
WHAT IS FISCAL SUSTAINABILITY ALL ABOUT?
Fiscal sustainability resurfaced as an issue during the 1980s and 1990s. To understand the
significance of the issue, one needs to know what the debate is about, how it is related to
other closely related debates and why it resurfaced precisely when it did. To facilitate this
understanding section 1.1 presents in very brief terms the basic technical relations involved.
Section 1.2 then shows how the issue of fiscal sustainability is related to the debate on government dissaving. The link between these two debates is very close since both concern the
levels of government income and expenditure, albeit in the one case the issue is current income and expenditure, while in the other it concerns non-interest income and expenditure.
The next section (section 2) presents some empirical evidence to explain the resurgence of
interest during the last two decades.
2.1
Debt and deficits
In what came to be a leading contribution to the field of fiscal sustainability, Blanchard
(1993:309) states that the key issue is whether or not the current course of fiscal policy
can be sustained without public debt exploding or imploding. If debt tends to explode,
government will have to increase taxes, reduce expenditure, monetise or even repudiate
debt. Thus, the central issue is the tendency of public debt over time. If it is stable and
neither explodes nor implodes, fiscal policy is sustainable. To Easterly and SchmidtHebbel (1991:37; 1994:68–70) public debt is also the central question on fiscal sustainability. However, their concern is ‘sustainable deficit levels’ rather than ‘fiscal sustainability’. A sustainable deficit level is one that is consistent with a stable debt/GDP ratio.
According to Zee (1988:666) sustainability is a positive (as opposed to a normative) concept into which, unfortunately, normative considerations were injected. Zee argues that sustainability as a positive concept merely means stability. From this point of view he defines
fiscal sustainability: ‘A sustainable level of public debt is therefore one that allows the economy, in the absence of unanticipated exogenous shocks, to converge on a steady state.’ It is
not sustainable beyond this level of public debt. (For a related view, see Smyth and Hsing
(1995) who consider what level of debt/GDP will maximise economic growth.) In contrast to
Blanchard and Easterly and Schmidt-Hebbel, the central issue to Zee is the convergence to
a steady state of the economy. Thus, Zee’s definition is broader than that of Blanchard and
Easterly and Schmidt-Hebbel. However, what is notable about his point of view is that public
debt also must not exceed its sustainable level. Thus, in general fiscal sustainability is
closely associated with the level and the change in the level of public debt, and in particular
the change in public debt relative to output (income). Zee argues further that a continuous
increase in public debt is not synonymous with an unsustainable fiscal policy, but merely the
symptom of an unsustainable fiscal policy. The cause lies in the expenditure and revenue
structure of government. The symptom together with the cause constitutes an unsustainable
fiscal policy. The symptoms have severe and accumulating consequences for the economy
so that the expenditure and revenue structure of the government cannot be sustained.
Hence, the unsustainability of fiscal policy.
3
Equation 1 provides a formal statement of the conditions for fiscal sustainability (Roux
1993:327; Hemming and Miranda 1991:70–72). 2
∆Dgt /Yt ≡ (rgt – gt )Dgt–1/Yt + Bgt /Yt + Rgt /Yt
Dg
Y
Bg
=
=
=
rg
g
Rg
=
=
=
(1)
Total public debt
Nominal GDP
The nominal primary balance of the public sector (+ deficit; – surplus),
i.e. the gap between non-interest expenditure and total revenue
The real interest rate applicable to the public sector
The real economic growth rate
A residual factor applicable to the public sector. It also catches the effect of debt monetisation (Fanizza and Mourmouras 1994:10–11).
The relationship between r and g in equation 1 indicates whether or not government can
run a primary deficit:
•
•
If r > g, the relationship will be positive, indicating upward pressure on the debt/GDP
ratio. This is the typical case in the G7 countries since the early 1980s (Eltis 1998:129;
see also Wray 1997:548–54). Government will need to run a primary surplus (a negative B in equation 2.1) to prevent an increase in the debt/GDP ratio;
If r < g, the relationship will be negative, indicating downward pressure on the
debt/GDP ratio. Government can run a primary deficit (a positive B in equation 1)
within the limits set by equation 1 without putting upward pressure on the debt/GDP ratio.
Unsustainability is indicated as a position where the real interest rate, rgt , exceeds the real
economic growth rate, gt , and where the primary balance, Bt , is persistently either in a deficit,
or in a surplus not large enough to cover the excess of the real interest rate over the real
growth rate. This simply means that the growth in tax collections cannot keep up with the
growth of the interest cost. As a result, government has to borrow increasingly to pay for interest cost (Congdon 1987:78; 1989:28).
To establish sustainability, government should run a primary surplus sufficient to cover
the excess caused by the real interest rate over the real growth rate. Fanizza and Mourmouras (1994:11–12) call this a sustainable primary surplus. The size of the primary surplus required to stabilise the debt/GDP ratio is (Congdon 1989:218; Bank for International
Settlement 1992:27; Gonzalez-Paramo et al. 1992:275; Blanchard et al. 1985:7):
– Bgt /Yt = (rgt – gt )Dgt–1/Yt
(2.1)
2
Equation 2.1 is for the non-inflationary case. For the inflationary case it would be DDgt/Yt º [(rgt –
gt)/(1 + gt)]Dgt–1/Yt–1 + Bgt/Yt + Rgt/Yt (difference in bold) where r and g are real and all others
nominal. For conciseness only the non-inflationary case is shown.
4
or equivalently:
Bgt /Yt = (gt – rgt )Dgt–1/Yt
(2.2)
Equations 2.1 and 2.2 can be used to make some general illustrative calculations. For
a debt/GDP ratio of approximately 60%, which is the norm for the Euro group of countries, each 1 percentage point gap between r and g implies a required primary budget
surplus of 0.6% of GDP. In the G7 case, in the early 1990s, this would translate to an
average required primary budget surplus of approximately 1.2% of GDP to achieve fiscal
sustainability, given the prevailing (r – g) gap of just over 2%. The higher the existing
debt ratio, the larger the primary surplus required per 1 percentage point (r – g) gap.
(Also see Appendix 1 where equations 1, 2.1 and 2.2 are put through their paces with
some illustrative numbers so as to provide the reader with an intuitive feeling of the logic
behind the equations).
The requirement to run a primary surplus does not imply that government should at all
times run a sufficiently sized primary surplus to prevent an increase in the debt/GDP ratio.
Government can alternate periods in which the primary surplus is too small to prevent an
increase in the ratio, with periods in which the actual primary surplus exceeds the required
ratio. However, government should on average run a sufficiently sized primary surplus to
maintain a stable debt/GDP ratio. Thus, government can vary the size of the primary surplus
over the course of the business cycle or another period of its choice. The point is that policymakers should plan to run a sufficiently sized primary surplus on average. Government can
also allow the debt/GDP ratio to increase temporarily in the expectation of higher economic
growth in future that will reduce the ratio (since GDP is the denominator of the ratio). For instance, government may expect a higher growth rate if it made an investment that increases
private sector productivity, or it might expect a stimulating fiscal policy to cause an increase
in the level and growth rate of income in the near future through income multiplier and investment accelerator effects. A higher economic growth may allow the collection of more
taxes without the need to increase the tax rate. A future decrease in the debt/GDP ratio and
the (r – g) gap means that the required size of the primary surplus in future will also decrease.
In addition to the calculation of the sustainable primary balance, one can also calculate the
sustainable conventional surplus or deficit. The sustainable conventional balance, F in equation 3 below (defined as the sustainable difference between total government revenue and
expenditure), is derived from equation 2.1 and equals the growth rate multiplied by the debt
ratio:
F t /Yt
=
=
(r – g)D t–1/Yt – rD t–1/Yt
–g.D t–1/Yt
(3)
In the typical Euroland case the maximum deficit that governments could run without putting upward pressure on the debt/GDP ratio would be: 2*0.6 = 1.2% of GDP. The significance
of this measure lies in the fact that most of the public debate (in so far as there is one) is
5
conducted in terms of the conventional deficit. For instance, in the European Union countries
agreed to stick to a 3% conventional deficit. However, because equation 3 ignores the relationship between the real interest rate and the real growth rate, the conventional deficit is too
crude a measure to use when analysing the sustainability of fiscal policy.
2.2
Dissaving as the cause of fiscal unsustainability: old wine in new bottles?
The link between fiscal sustainability and government dissaving is not always clear. In
order to understand what according to modern mainstream theory causes fiscal unsustainability, one needs to look beyond the direct theory on fiscal sustainability. Therefore,
this section shows that in terms of modern mainstream theory, an unsustainable fiscal
policy is the result of government dissaving, just as the crowding out of investment is.
Underlying the notion of fiscal sustainability is the idea that government should not continuously dissave as it causes a continuous increase in the debt/GDP ratio, an increase in
interest rates and a reduction in investment (Buiter and Kletzer 1992:290; Friedman
1992:301–2; Cebula 1987:7–58). (See Posner [1987] who makes the same point using a
modern mainstream interpretation of Domar. For a slightly alternative view, see Cavaco
Silva [1986:78–9] who argues that deficits crowd out portfolio investment, but not investment demand [real investment]).
In the eyes of a modern mainstream economist, a government that dissaves cannot
sustain its current levels of expenditure and receipts. Before the Keynesian revolution it
was considered a canon of prudent fiscal policy to run a balanced budget (cf. the Treasury View and the views of classical economists such as Smith and Ricardo, mentioned
below). In particular, it was held that government should not borrow to finance current
expenditure.
Despite the simple assertion that a government that dissaves cannot sustain its current
levels of expenditure and receipts, the link between fiscal sustainability and government
dissaving is complex (Hemming and Mackenzie 1991). To facilitate the exposition equation 1 is recalled (assume that the residual, R, is zero):
∆Dgt /Yt ≡ (rgt – gt )Dgt–1/Yt + Bgt /Yt
(1)
Note that the expenditure included in the primary balance in equation 1 consists of both
non-interest current expenditure and capital expenditure. Thus, equation 1 can be rewritten as:
∆Dgt /Yt ≡ (rgt – gt )Dgt–1/Yt + C gt /Yt + Igt /Yt
(4)
C = The non-interest current balance
I = Investment by government
In equation 4 the current deficit (including interest expenditure) equals:
6
rgt Dgt–1/Yt + C gt /Yt = current deficit as percentage of GDP
Suppose government decides to let its capital, K, expand at the same rate as GDP. This
assum ption is in line with neoclassical growth theory, e.g. the Solow model, which states that
the capital/income ratio remains constant unless economic agents accept a change in the
marginal product of capital (the interest rate). If agents do not want a change in the total capital/income ratio, then government too must keep its share of capital/income constant (unless
a declining share of government in the capital/income ratio is offset by an increase in that of
the private sector, something which cannot continue indefinitely). The result is equation 5:
∆Dgt /Yt ≡ (rgt – gt )Dgt–1/Yt + C gt /Yt + gKgt–1/Yt
gKg =
(5)
Ig so that the capital of government grows at the economic growth rate
Once capital expenditure and interest cost are determined, the only variable that could
adjust to ensure that government runs a sustainable primary surplus, is the non-interest
current balance (C in equation 5). Thus, to prevent an increase in the debt/GDP ratio,
government should run a non-interest current surplus equal to the required primary surplus (where a surplus has a positive value) plus capital expenditure. Hence, equation 6:
– Cgt /Yt = – (Bgt – gKgt ) /Yt = (rgt – gt )Dgt–1/Yt + gKgt–1/Yt
(6)
The sustainable non-interest current balance represents the amount with which revenue has to exceed non-interest current expenditure to ensure that there is no increase in
the debt/GDP ratio and that the total capital/GDP ratio of government remains constant.
If in the past government borrowed only to finance investment, then D = K. If it also
borrows to finance investment in the current period, then the change in the debt/GDP
ratio equals the current balance/GDP ratio. This requires capital expenditure to generate
a return in the form of higher tax revenue without the need to increase tax rates. Otherwise, the capital expenditure is no different from current expenditure. However, Buiter et
al. (1993:87–8) argue that: ‘…returns on investment projects (even socially desirable
ones) need not accrue as cash appropriated by government.’ Barring the problem that
Buiter et al. mention, equation 5 then reduces to equation 7, which, with D = K, reduces
further to equation 8:
∆Dgt /Yt ≡ rgt Dgt–1/Yt + Cgt /Yt – gt Dgt–1/Yt + gKgt–1/Yt
≡ rgt Dgt–1/Yt + Cgt /Yt
(7)
(8)
Thus, should government dissave, so that rgt Dgt–1/Yt + Cgt /Yt > 0, there will be an increase
in the debt/GDP ratio, given that the capital/GDP ratio of government remains constant. To
prevent dissaving and an increase in the debt/GDP ratio, government should run a noninterest current surplus equal to its interest cost. This is the case both when r > g and r < g.
7
Note further that debt can increase with gt Dgt–1 without putting any upward pressure on the
debt/GDP ratio. Recall from above that the sustainable size of the conventional deficit is
gt Dgt–1/Yt . Thus, the conventional deficit must be used to finance government investment.
Therefore, with D = K, the reduction in the debt/GDP ratio brought about by –gt Dgt–1/Yt in
equation 7 will then equal the increase brought about by gt Kgt–1/Yt . Otherwise, the debt/GDP
ratio increases or the capital/GDP ratio decreases. (To obtain a better intuitive feeling for the
logic behind these equations, the reader is referred to Appendix 2.)
If government dissaved in the past, so that D > K, then the non-interest current surplus
must exceed the surplus that government would run in the absence of past dissaving.
The amount of this excess must be equal to the interest rate multiplied by the debt incurred to finance current expenditure. Thus, government must reduce non-interest expenditure or increase tax rates so that the interest on this debt is paid from tax income.
Government will pay the interest for as long as it has not repaid the debt. The value of
the government bonds issued to finance current expenditure will then be equal to the discounted value of all future non-interest current balances. Thus, fiscal policy will be sustainable and equation 8 becomes equation 9 for the case where debt/GDP is not allowed
to change so as to maintain the net worth of government.
Dgt–1/Yt = –Cgt /rgt Yt
(9)
Thus, it can be concluded from the above that underlying the notion of fiscal sustainability in modern mainstream theory is the idea that government should not continuously
dissave as this causes the debt/GDP ratio to increase continuously. Modern mainstream
theory argues further that if there is a need for government to dissave from time to time,
government needs to alternate periods of dissaving with periods of saving to ensure stability in the debt/GDP ratio over time. It also means that if government decides to borrow
to finance current expenditure, it should pay the interest from tax revenue to prevent any
further increase in the debt/GDP ratio. Therefore, the modern mainstream view on fiscal
sustainability is merely a more nuanced version of the old classical view and Treasury
View. According to this view, government should in general not dissave, as ‘[i]t is widely
accepted that fiscal deficits are bad …’ (Blanchard et al. 1985:5). The conditions under
which government is allowed to dissave are very limited and include for instance times
when consumption is not optimal (a case of dynamic inefficiency) and cases where government can improve the welfare of liquidity constrained individuals (Inman 1990:81).
3
HOW SUSTAINABLE ARE FISCAL POLICIES INTERNATIONALLY?
In equation 1 three variables seem relevant in terms of modern mainstream theory. These
are the real interest rate, the real economic growth rate and the public debt/GDP ratio. In
particular, the difference between the real interest rate and the real economic growth rate
determines whether government must run a primary surplus or deficit. If the (r – g) differential
is positive government needs to run a primary surplus and vice versa if the differential is
8
negative. The differential together with the debt/GDP ratio (usually its initial value or its value
in a previous period) determines the primary balance government needs to run to prevent a
change in the debt/GDP ratio. This section examines the movement internationally in the
differential and the debt/GDP ratio since 1980.
What is the nature of the differential between interest rates and GDP growth rates in practice? Have there been any significant changes? It seems to be agreed that the world entered
a high-interest-low-growth era in the 1980s and 1990s, as opposed to the low-interest-highinflation era of the 1970s. In the G7 group, the unweighted average real growth rate for
1976–80 was 3.4%, in contrast with an unweighted average real government bond interest
rate level of 0.3% (IMF 2002). For 1981–85 the relationship switched, with the average
growth rate equalling 1.8% and the government bond rate equalling 4.6%.
Figure 1 The interest rate – growth rate gap for the G7 countries
6
4
2000
1997
1994
1991
1988
1985
1982
1979
-2
1976
0
1973
(r - g) gap
2
-4
-6
-8
Source: Tanzi and Fanizza (1995) and IMF International Financial Statistics (various issues)
This switched relationship continued for the remainder of the 1980s and all of the 1990s
(for 1986–90, 1991–95 and 1996–2000 respectively the average growth rate was 3.6%,
1.9% and 2.3%, while the average government bond rate was 4.7%, 4.9% and 3.4%).
Masson and Mussa (1995:13,15–18) argue that the lower growth rates accompanied by
increasing unemployment, particularly in Europe, contributed to the increase in deficits as
revenue declined and benefit programmes for the unemployed expanded. Two matters
are apparent:
1. The post–1980 phase can be characterised as a high real interest rate era that persisted
into the 1990s. Masson and Mussa (1995:15–18) argue that anticipated inflation exceeded actual inflation (because of persistent inflationary expectations), causing the actual real interest rate to be higher than the expected real interest rate. Phelps and Zoega
(1998:788) confirm the significant increase in the average level of real interest rates in
the world since approximately 1981/82 (see also OECD 1993). Easterly and SchmidtHebbel (1994:29) argue that the increasing liberalisation of interest rates since the mid1970s caused deficits to become more sensitive to real interest rates.
2. Real growth rates for the major industrial countries have declined, and real GDP growth
rates have been significantly below real interest rates since the 1980s: r > g by an aver-
9
age of 2% for G7 countries (see Figure 1, which shows a positive (r – g) gap since 1980).
For 1981–85, 1986–90, 1991–95 and 1996–2000 respectively the average (r – g) gap
was 2.7%, 1.1%, 3% and 1.1% (IMF 2002). This is in direct contrast to the 1970s – an
era of widespread and sustained high inflation – when g exceeded r by some margin (i.e.
a negative (r – g) gap). For instance, for 1976–80 the (r – g) gap was –3.1%.
One, not unexpected, consequence of this evolving pattern has been that increasing debt
and fiscal sustainability have become a real problem in many countries. Growth in tax revenues has been sluggish and debt servicing has taken up an increasing share of current expenditure, crowding out other expenditure and/or creating large budget deficits. Figure 2
shows the significant increase in the debt/GDP ratio in G7 countries since the early 1980s to
the mid-1990s. This coincided with the inversion of the relationship between the real interest
rate and the real growth rate.
Figure 2 Gross public debt/GDP of G7 countries
80
Debt/GDP ratio
70
60
50
40
30
20
1994
1991
1988
1985
1982
1979
1976
1973
0
1970
10
Source: Tanzi and Fanizza (1995).
A common pattern seems to emerge: high global real interest rates manifested in most
countries since the early 1980s, which in most cases were accompanied by declines in
growth rates to well below the real interest rate. In addition, this pattern in interest rates and
growth rates coincided with rising public debt/GDP ratios. Since the mid-1990s the public
debt/GDP ratios in some of the major industrialised countries stabilised, as can be seen for
the US in Figure 3.
10
Figure 3 The US public debt/GDP ratio
60
Debt/GDP ratio
50
40
30
20
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
0
1973
10
Source: IMF, International Financial Statistics (various issues)
Figure 4 shows that the stabilisation of the US debt/GDP ratio coincided with a decrease in
the US (r – g) gap. Some of the other G7 countries also managed to stabilise their debt/GDP
ratio. For instance, France and Germany stabilised it at approximately 60%, while Italy managed a decrease from 120% to below 110%.
Figure 4 The (r – g) gap in the US
10
8
(r - g) gap
6
4
2
0
-2
1997
1994
1991
1988
1985
1982
1979
1976
-6
1973
-4
Source: IMF, International Financial Statistics (various issues)
Developing countries with significant foreign debt have experienced additional problems.
These stem from the same phenomenon: the combination of low growth (limited ability to
repay foreign-denominated public debt given low tax revenues) and high global interest rates
(high debt servicing obligations in the budget), resulting in rising foreign debt (Gibson
1996:286). The debt service ratio (debt service/exports) of LDCs also increased from 15.9%
in 1973 to 23% in 1986. Thereafter it decreased to 15.8% in 1994, not because of an increase in exports, but because of the restructuring process of foreign debt, some defaults
and an unwillingness on the part of the international financial community to grant further
loans to LDCs (Eng et al. 1998:14–15). Cebula and Rhodd (1993) argue that the high interest rate level in the US caused the third world to pay high interest rates on their foreign debt,
which increased the probability of debt crises.
11
As far as African countries are concerned, Gordon (1997:6–8,13) notes that in future some
countries may expect lower growth rates than those they currently experience. The growth
rates of countries such as Namibia, Botswana, Kenya and Zimbabwe are inflated because of
continuous large increases in government employment. Since this practice is unsustainable,
expected future growth is lower. Gordon (1997:13) notes that this is especially important in
determining whether or not fiscal policy in African countries is sustainable, i.e. sustainability
should not be measured on mere forward projections of the currently inflated growth rates.
Far Eastern countries are notable exceptions to these movements in the gap between the
real interest rate and the real economic growth rate. The monetary policies of many of these
countries resulted in low and even negative real interest rates. These countries also experienced phenomenal real economic growth rates, sometimes exceeding 10%. As a result the
real economic growth rate exceeded the real interest rate. After the financial crisis of
1997/98, many economists argued that the crisis was the result of loose monetary and credit
policy (cf. Bisignano 1999), which resulted in excessive credit creation and real interest rates
that were too low – even below the real economic growth rate. To some economists this assessment of the crisis and its causes is sufficient reason why countries should not repeat
these policies. In their opinion the crisis demonstrates the modern mainstream viewpoint that
it is futile to attempt to manipulate the growth rate and interest rate level over the long-run.
However, it is notable that the fiscal policies of the Far Eastern countries were very
prudent, even though they could afford to run primary deficits. Most of these countries ran
budget surpluses and from 1986–98 the debt/GDP ratios of countries such as Malaysia,
Thailand, Singapore and Indonesia declined, in some cases even dramatically. It still remains a question whether or not these contractionary fiscal policies impacted negatively
on these economies and ultimately contributed to the crisis that unfolded in that part of the
world in the late 1990s.
4
THE EVOLUTION OF THE THEORY OF FISCAL SUSTAINABILITY
This section focuses on the evolution of the debate internationally over the past two to
two and a half centuries. Whereas the discussion in the previous section showed how
increased attention to fiscal sustainability during the last two decades stem from the significant n
i crease in public debt/GDP ratios, the discussion in this section shows that
throughout history periods of heightened attention in economic theory to the solvency of
government coincided with periods in which the public debt was high or increasing at a
high rate. The section also indicates that rival interpretations did and still coexist, giving
policy-makers a choice of theory to guide them in their policy decisions. This is so despite
the fact that some interpretations are very dominant at times as for instance the Keynesian interpretation during the mid-20th century and the modern mainstream one after that.
Despite this dominance alternative views do exist and have existed for a long time. As
such this section attempts to draw out recurrent themes that despite their long being debated, continue to stir controversy and debate.
12
The international evolution of the debate on fiscal sustainability is divided into three periods. The first period covers the early, pre-Keynesian views, the second period covers
the views in the 1930s and 1940s, when Keynesian theory was on the advance and the
third period covers the modern mainstream views on fiscal sustainability.
4.1
Early views
Although the term ‘fiscal sustainability’ is of recent vintage (latter quarter of the twentieth century), concern over the effects of public debt and in particular an ever-increasing debt burden, is not new. Adam Smith (1994 [1776]:1009–11), quoting Pliny, reports how the Romans
reduced the amount of copper in the As (the denomination of their coin). This inflated the
money supply, making it easier to repay debts incurred in the Punic wars. Mundell (1993:12)
relates how from the thirteenth century onwards the city-state of Venice, in its successive
wars with Genoa, amassed large debts. As Venice did not repay the accumulated debts in
full in peacetime, the amount of debt grew over time. The Venetians called this debt Monte
vecchio meaning ‘old mountain’, which refers to the mountain of debt – an indication of the
size of the debt burden. In Great Britain the history of public debt goes back to the 1688
revolution (Kaounides and Wood 1992:xiv). Mundell (1993:12) reports that in Hume’s time
(eighteenth century) British public debt was three times the national income. By the time of
the American Revolution (1776) interest on public debt in Britain absorbed 70% of tax revenue. A rising public debt was also one of the causes of the French Revolution (1789)
(Schama 1989:60–71).
As public debt was mostly incurred in the course of war, it is not surprising that classical
economists such as Hume, Smith, Ricardo and Mill perceived it as something negative. According to Hume (as quoted in Kaounides and Wood (1992:xvii)) ‘…either the nation must
destroy public credit, or public credit will destroy the nation.’ Kaounides and Wood (1992:xvi)
as well as Rowley (1986:49) argue that the views of classical economists on public debt are
rooted in a deep suspicion regarding the size of government and the threat of inflation or
bankruptcy implicit in a large public debt. Although big governments do not necessarily incur
large debts, whereas small governments may, classical economists believe that big governments are more prone to incur large debts (Rowley 1986:57). According to classical economists, governments are partisan, corrupt and inefficient (Rowley 1986:58). Kings and despots still ruled many of these governments. It is therefore not surprising that classical
economists who emphasise individualism feared the danger of a large government.
Adam Smith (1994 [1776]:1004) opines that, should governments use taxes rather than
debt to finance war, this would shorten the duration of wars and cause governments to think
twice before initiating hostilities. Smith (1994 [1776]:1002–3) argues that the creation of public debt prevents the formation of new capital. This may be seen as one of the earliest warnings of the occurrence of crowding out, even though the term as such did not exist at the
time. In addition, he rejects the Mercantilist notion of Melon, that the payment of interest on
domestically held debt represents no burden as it is a case of ‘…the right hand which pays
the left.’ (1994 [1776]:1005). He bases his rejection on a distinction between the owners of
land and capital stock and bondholders. Interest represents a transfer from the former to the
13
latter. Thus, it is a disincentive to owners of land and capital stock, which may cause them to
accum ulate less capital or to emigrate (1994 [1776]:1005–6).
To Ricardo (1973 [1817]:162–3) the burden of public debt is that it reduces the accumulation of capital at the time when debt is incurred. This is again the crowding out argument.
Because aggregate income is not affected, interest payments and the repayment of domestic
debt does not represent a burden. However, he does note (1973 [1817]:163) that the increase in taxes caused by a high debt may cause those who have to pay the taxes to emigrate in an attempt to avoid paying taxes. Modern mainstream economists are in tune with
Ricardo (1973 [1817]:164) when he argues that to diminish debt requires ‘…the excess of the
public revenue over the public expenditure.’
Mill is no friend of public debt either. However, his view is more qualified than that of
Hume, Smith or Ricardo. Given the right circumstances, he recognises a need for public
debt (1886:527). These include first, foreign loans that absorb excess foreign saving.
Secondly, if government borrowing generates saving that would not take place in the absence of public debt. This implies a supply-induced demand, where the supply of government securities creates a demand for them. Therefore, this action does not affect the
saving that finances capital. Other possibilities include the absorption of saving that
would have been invested in unproductive capital or used to finance foreign capital. The
former takes place when there is an over-accumulation of capital. Thus, the absorption of
these saving will not cause unemployment (1886:527–8). However, beyond these cases,
public debt represents a burden as it absorbs saving that could otherwise have been
used productively. In this case the creation of public debt causes the interest rate to increase (1886:527), resulting in less capital accumulation.
The only dissenting voice among classical economists was that of Malthus. In what may be
considered a precursor of the work of Keynes, Malthus (1836:322–7;365) described how
over-saving causes a general excess supply of goods and thus, a general shortage of demand. Malthus (1836:322) takes issue with Ricardo who argues that an excess supply in one
market means an excess demand in another, so that in the aggregate supply still needs to
equal demand. The shortage of demand, or ‘effectual demand’ 3 as Malthus (1836:326) called
it, introduces a role for public debt and especially for the interest on debt. According to Malthus (1836:409), the interest on debt, presumably paid for by taxes, ‘…contribute[s] powerfully to distribution and demand;… ; they ensure the effective consumption which is necessary to give the proper stimulus to production;…’. Hence, he argues (1836:411) against the
unqualified notion that ‘…the sudden diminution of a national debt and the removal of taxation must necessarily tend to increase national wealth, and provide employment for the labouring classes.’ Notwithstanding this view, Malthus (1836:412) warns against an excessive
public debt. The reasons include first, the necessity to levy a tax to pay interest on debt and
which may interfere with production and secondly, the negative sentiment created by debt.
Thirdly, there is the danger that inflation may erode the interest income of bondholders and
3
Clarke (1988:266–7) argues that Keynes borrowed the term ‘effective demand’ from Malthus and
considered the work of Malthus to contain the germ of his own theory on effective demand. In another brilliant insight, which foreshadows the income multiplier, Malthus (1836:326 footnote) argues
that ‘Parsimony, or the conversion of revenue into capital, may take place without diminution of consumption, if the revenue increases first.’
14
lastly, the danger that deflation may render it impossible for taxpayers to pay enough taxes to
service debt. Hence, Malthus (1836:412) argues that it is ‘…desirable gradually to diminish
the debt, and more especially to discourage the growth of it in future, even though it were
allowed that its past effects had been favourable to wealth, and that the advantageous distribution of produce which it had occasioned, had, under actual circumstances, more than
counterbalanced the obstructions which it might have given to commerce.’
4.2
Keynes and the changing view on public debt – the 1930s and 1940s
The classical view on public debt achieved its most theoretically refined state just prior to the
Keynesian revolution. In what became known as the Treasury View set out in its 1929
memorandum, the British Treasury formulated the rationale for the balanced budget norm
(Clarke 1988). The Treasury did this in the face of growing criticism of its inactivity regarding
the growing unemployment problem in Great Britain. However, with the onset of the great
depression, governments found in Keynesian theory a rationale to run budget deficits. With
governments running deficits in several successive periods, it is no surprise that the issue of
growth in public debt resurfaced.
In addition to this development, public debt/GDP ratios incurred by those countries that
participated in WWII increased substantially. Thus, the advent of Keynesian economics
and the large public debt/GDP ratios caused by the war set the scene for the emergence
of new views on deficits, debt and fiscal sustainability. Some of the views include those of
Lerner (1948; 1951; 1961), Kalecki (1944), Hansen (1947), Schumacher (1944) and Domar (1944). These early views were very much embedded in Keynesian theory.
Kalecki (1944:40) argues that an increase in public debt always finances itself, because it stimulates national income, which, in turn, causes saving to increase. This line of
argument is based on the standard Keynesian income multiplier effect. Schumacher
(1944:115) argues that the deficit only absorbs saving that would not be absorbed otherwise. This is in line with the early Keynesian view (which originates in Keynes’ Treatise
1930a) that an excess of saving will not cause a decrease in the interest rate to stimulate
investment. The excess saving will merely remain idle as long as investment remains
below a full-employment level. As such, a budget deficit can absorb the idle saving. In
addition, the increase in public debt need not cause the interest rate to increase if the
central bank sufficiently expands the money supply (Kalecki 1944:41–2). Note the similarity between this view and that of Malthus mentioned above.
Lerner’s (1948; 1951; 1961) argument is similar to that of Kalecki and Schumacher. In
what he coined the ‘functional finance’ view (1951:122–138, 270–288), he argues for the
use of deficit finance to pursue full-employment. As long as output is below fullemployment there is no reason to expect inflation as a result of deficit finance (1951:279–
83) and government could rely on the income multiplier to move the economy to fullemployment (1951:250–57). He further argues (1951:276–8) that a deficit financed by
money creation will be more expansionary than one financed through domestic borrowing. Borrowing entails the extraction of liquidity from the economy where after it can be
spent, whereas money creation entails the creation of additional liquidity. Hence his
15
statement (1951:278): ‘… borrowing … postpones the day when deficits are no longer
necessary.’
Neither is Lerner (1951:272–4) concerned about the size of the domestic public debt.
The repayment of domestic public debt is like repaying debt to oneself. Thus, because
individuals will not be worse off, no concern is warranted if domestic public debt is high.
Lerner shares this view with Ricardo and Mercantilists such as Melon, who hold that the
repayment of debt and interest is like the right hand paying the left. Neither was Lerner
the last to consider this issue. In a more modern vein, Heilbroner and Bernstein (1989:51,
132) agree with Lerner. Langdana (1990:98) also expresses a view similar to that of
Lerner. However, Peacock (1986) notes that the focus should be on how the size and
structure of the debt affects the growth, allocation and distribution of resources. Such a
view is closely associated with the view that debt does carry a burden.
In a point particularly relevant to a discussion of fiscal sustainability, Lerner (1951:274–
5) argues that a ‘functional finance’ policy naturally limits any increase in the public debt.
As soon as the economy reaches full-employment, there is no need for further fiscal
stimulus. Thus, no additional borrowing needs to take place.
At that time Hansen also contributed to the discussion. Hansen’s statement (Domar
1944:799) that public debt should be considered in relation to national income laid the foundation for the modern sustainability theory. Hansen (1947: 276–9) took Lerner to task regarding his view that, as a nation owes its domestic debt to itself, the amount is not important
(Lerner 1948: 367–9; 1951:272–4; 1961; 380–85). He points out that Lerner himself qualified
this view when he considers the tax rate necessary to pay the interest on the debt. Tax rates
need not increase if income increases sufficiently to yield enough taxes to pay the interest.
However, if income does not increase sufficiently, tax rates must increase. This introduces
the question of the size of the income multiplier. Hansen allows for the possibility that the
multiplier may be too small for tax rates to remain unchanged. He is less optimistic than
Lerner regarding the ability of government to stimulate economic growth with deficit spending.
In addition, in a paragraph that anticipates the modern debate on fiscal sustainability, Hansen (1947:277) states ‘Federal expenditure in the postwar in the United States will certainly
be so high that if taxes do not exceed the interest payments on the debt…, we should experience inflation.’ [my emphasis]. When taxes do not exceed interest payments, government
finances interest with new debt. Hansen thus reacts to Lerner who held that ‘…interest does
not have to be raised out of current taxes.’ Hansen argues that the statement by Lerner becomes invalid if debt finance causes inflation instead of a higher output. Thus, Hansen sees
a limit to the ability of government to stimulate the economy. In modern terms one could argue that Hansen is in favour of a primary surplus because deficits fail to stimulate output and
cause inflation. (The term ‘primary surplus’ did not exist at that time.) Hansen also prefers
low interest rates. This eases the task facing government when it has to manage and reduce
a large public debt (Hansen 1947:148–51).
By far the most sophisticated analysis of fiscal sustainability during that time was by Domar (1944). Domar is the father of the formal mathematical treatment of fiscal sustainability
that is still in use today. Although Kalecki, Hansen and Lerner had an intuitive understanding
of the issue, Domar clearly demonstrates the technical relationship between the various vari16
ables that determine fiscal sustainability (1944:816). Contrary to what Hansen proposed,
Domar (1944) did not call for a reduction of public debt through expenditure cutbacks or increases in the tax rate. Instead, he proposed larger budget deficits, which in his view should
stimulate the economy.
According to Domar, a higher deficit generates a higher economic growth, which in turn,
generates enough tax revenue to annually service the debt (Domar 1944: 802–3). If the tax
generated through the higher deficit did not sufficiently service it in total, the problem ‘…does
not lie with the deficit financing as such, but in its failure to raise the national income.’ (Domar
1944: 806). Domar clearly placed his trust in the effect government deficits will have on economic growth through the Keynesian income multiplier (Domar 1944:801; 819). He agrees
with Lerner on this issue. Thus, government had to ‘grow the economy out of its public debt
burden’. He demonstrated that, given a large enough income multiplier, the deficit used to
stimulate the economy would not cause an increase in the public debt/GDP ratio. A prerequisite for this is that the fiscal stimulus must raise the real economic growth rate above the real
interest rate.
Domar relies on the Keynesian income multiplier to show that the interest on public
debt need not impose an increasing burden on taxpayers in the form of a higher tax rate.
He does not agree with Hansen that government should run a surplus to reduce debt
when faced by too small an income multiplier. The size of the income multiplier itself
should rather be addressed. This is especially evident in the last paragraph of his article
(1944:823): ‘…, the public debt and its burden loom in the eyes of many economists and
laymen as the greatest obstacle to all good things on earth. The remedy suggested is
always the reduction of the absolute size of the debt or the prevention of its further
growth. If all people and organizations who work and study, write articles and make
speeches, worry and spend sleepless nights – all because of fear of debt – could forget
about it for a while and spend even half of their efforts trying to find ways of achieving a
growing national income, their contribution to the benefit and welfare of humanity – and
the solution to the debt problem – would be immeasurable.’ For a more recent expression of the same idea, see Heilbroner and Bernstein (1989:53) and Arestis and Sawyer
(2003).
A few differences between Hansen and Domar may be noted. Hansen considers the
impact deficits may have on inflation, whereas Domar assumes a constant price level
(1944:802). According to the Keynesian view, an economy needs a fiscal stimulus only
when there is unemployment. This is most clearly expressed in Lerner’s functional finance view. In the presence of unemployment fiscal deficits can cause inflation only if
bottlenecks exist that dampen the size of the multiplier. Thus, unlike Hansen, Domar was
optimistic about the ability of an economy to overcome bottlenecks.
The contributions by Domar and Lerner in particular, and the earlier contribution by
Malthus, indicate that with different sets of assumptions on economic behaviour, different
views on fiscal sustainability can exist. This is especially relevant in view of modern
mainstream attempts to portray the modern mainstream version of sustainability theory
as a positive theory with no normative elements (cf. Zee 1988), thereby establishing it as
the only theory of fiscal sustainability.
17
4.3
The modern mainstream view: the return of classical morals
Following the developments of the 1940s, less attention was paid to the theory on fiscal sustainability during the ensuing three decades. This lack of attention may be attributed to the
strong economic performance of many countries. In addition, the Domar view seemed vindicated. During this period the real interest rate did not exceed the real economic growth rate
(Eltis 1998:131). Governments could run deficits without a concomitant increase in public
debt/GDP ratios. The strong economic performance in the form of high economic growth
rates also allowed many governments to reduce public debt/GDP ratios (Masson and Mussa
1995:4b).
However, as section 2 above demonstrated, this all changed during the 1980s. According
to the above data, public debt/GDP ratios surged globally during this period. Consequently,
attention was again focused on the sustainability of fiscal policy. This is evident from the attention fiscal sustainability received in many countries (Bank for International Settlements
1992; Bohn 1998; Ball et al. 1998; Kremers 1989; De Grauwe 1994:48–62; also see table 1
above). This resulted in a multitude of new developments regarding the theory of fiscal policy. However, modern theory displayed marked changes from that of the 1940s.
Whereas Domar considered it normal for the real interest rate to be lower than the real
economic growth rate, modern theory assumes that it is normal and ‘prudent policy’ for
the real interest rate to exceed the real economic growth rate. It represents prudent policy both because, according to the modern mainstream view, a higher interest rate is
more likely to prevent inflation, and because an economy is dynamically efficient according to the Diamond model when the real interest rate exceeds the real growth rate (cf.
Diamond 1965). For instance, Sargent and Wallace (1981:6) in their seminal article entitled ‘Some unpleasant monetarist arithmetic’ assume that ‘…the real rate of interest exceeds the growth rate of the economy. We have made that assumption because it seems
to be maintained by many of those who argue for a low rate of growth of money no matter
how big the current deficit is.’ It is obvious in Eltis (1998:131) that the view held by Sargent and Wallace is widespread among modern mainstream economists. Eltis (1998:131)
states that Domar’s assumption of a constant and especially low interest rate represents
an aberration from the real world. Abel et al. (1989) share this view with Eltis. The implication of this for fiscal sustainability is that if it is normal for the real interest rate to exceed the real growth rate, it means that it is also considered normal for government to run
a primary surplus.
There are further differences between Domar and modern mainstream views that form the
basis of the modern fiscal sustainability theory. The Domar model assumes a fixed, and
(compared to today’s standards) low interest rate (1944:800), that itself is unaffected by the
size of the deficit. However, due to the advent of modern mainstream theory and its subsequent influence on the behaviour of lenders in credit markets, the size of the budget deficit
and public debt does feature in the pricing of loans. For instance, it influences the international credit rating of a country. A large deficit and public debt are seen as factors that reduce
the credit rating of a country. This, in turn, increases the interest rate that a country pays on
international credit markets.
18
Modern mainstream economists agree with Hansen – who proposed a budget surplus to
prevent inflation since the income multiplier will be too small – and reject Domar and Lerner –
who held that government could grow the economy out of the burden of public debt by relying on the income multiplier. For instance, Posner (1987:403) rejects the Lerner view that
internal debt represents no burden on future generations. He sees the increase in future tax
rates to stabilise the debt/GDP ratio, as a burden. Tax rates need to increase only in the absence of the multiplier. Thus, he agrees with Hansen.
If, according to modern mainstream economists, a government cannot grow the economy
out of its public debt burden, what policy decisions should it enact to ensure a sustainable
fiscal policy? Fiscal policy is unsustainable if the debt/GDP ratio increases at an accelerating
rate (from, say, 50% to 51% in 2000 and then from 51% to 54% in 2001, etc.). The cause of
unsustainability lies in the difference between the levels (and not the composition) of expenditure and revenue. Thus, according to Blanchard (1993:309), Buti (1990:14–15), Delarosière
(1986:25), Chouraqui et al. (1986:16) and Miller (1983:11), the direct cure for an unsustainable increase in debt is either to reduce non-interest expenditure or to increase taxes. As a
policy prescription it traces its origins to Ricardo (see above). Hopkin and Reddaway
(1994:307), like Blanchard, stress the necessity to adjust expenditure and taxes and argue
that monetary policy must ensure a reduction in interest rates to accompany the process.
Hallet and McAdam (1996) also note the importance of adjustments in expenditure and
taxes, but argue that tax reform is a further prerequisite to prevent a reduction in GDP, the
denominator of the debt/GDP ratio.
A further development in the modern mainstream view expressed by Horne (1991:1–2) is
to differentiate between fiscal sustainability and government solvency. A policy that government currently pursues may not be sustainable if it causes an increase in the debt/GDP ratio.
However, as government may reverse the policy in future, an unsustainable fiscal policy
does not necessarily imply that government is insolvent. Only if government is unable to reverse an unsustainable policy, is it insolvent. In addition, if public debt and interest payments
are co-integrated with GDP, it may constitute evidence in support of government solvency
(Kremers 1989:221–5). However, it may be noted that if the behaviour of government ensured solvency in the past, it does not guarantee such behaviour in the future. Another way
of statistically testing government behaviour is to determine whether the primary balance is
mean reverting and, in particular, whether the primary surplus is an increasing function to the
size of the public debt/GDP ratio (Bohn 1998). However, this is again an indication that policy
was solvent in the past. Thus, to determine whether or not government is currently solvent
even though the public debt/GDP ratio is increasing, requires from an analyst to determine
whether or not government will be able to reverse its policy through an adjustment in expenditure and taxes.
However, Galbraith and Darity (1994:342) propose another angle to determine whether
or not the fiscal policy pursued by government is sustainable. This is based on their interpretation of Blanchard. The question is not whether or not government will someday
reverse a policy that currently causes the debt/GDP ratio to increase, but rather whether
or not the real burden of interest is greater than the ‘largest feasible primary surplus’.
This implies that the maximum sustainable debt is determined by the ratio of the largest
feasible primary surplus to the real interest rate. This approach also allows considera19
tions of political sustainability. If there is a limit to the extent to which expenditure can be
reduced or taxation increased, there also is a limit to the size of the largest feasible primary surplus. This places a limit on the maximum feasible size of public debt. Galbraith
and Darity (1994:342–3) use this angle to argue that the interest payments that the US
government had to make in the late 1980s and early 1990s to service its public debt were
still falling far short of the ‘largest feasible primary surplus’, i.e. analysts, commentators
and the public did not have to be so concerned with the public debt/GDP ratio that existed then. With this argument Galbraith and Darity (1994:341–3) wanted to calm concerns about the state of US public finance in the aftermath of the large Reagan deficits.
Indeed, they warned against mere deficit cuts, arguing in familiar Keynesian fashion that
‘…deficits do tend to stimulate economic growth.’ They also reject crowding out by stating
that ‘…it appears that deficits do not displace private investment; rather … they tend to
raise profitability and, therefore, to stimulate rather than restrict private investment.’
Galbraith and Darity (1994:345) also argue for the use of deficits to stimulate the economy when there is less than full employment. Therefore, Galbraith and Darity provide a
view falling in the tradition of Malthus, Keynes and Domar.
Arestis and Sawyer (2003) also fall in this tradition. They agree with Galbraith and
Darity that deficits do not necessarily crowd out investment. They also argue for a stabilization policy aimed at raising the real growth rate above the real interest rate when the
economy finds itself in a recession. In addition, they reject the view that fiscal policy
should not be used to stabilize the economy and that, instead, monetary policy should be
used because fiscal policy suffers from long internal policy lags.
The link between fiscal unsustainability and government dissaving also makes its appearance in the modern debate, particularly since the increase in the debt/GDP ratios in many
countries since the early 1980s coincided with increases in the interest rate level. Given that
the fiscal sustainability equation (equation 1) links the interest rate and the debt/GDP ratio,
modern theorists focused their attention on the causal link between the interest rate and the
debt/GDP ratio. Various explanations have been given for this causal link.
One prominent line of explanation identifies high levels of public deficits, or public debt,
as a primary factor: ‘Economic studies based on non-Keynesian theory have found a
close positive correlation, with reference to the 1980s and 1990s, between the public
deficits or debts and the real – more often short-term – interest rates in the industrial
countries. The prevailing interpretation has been that the deficits on current account of
the public sector … and the public debts – implying a larger offer of bonds and an increased demand for loanable funds – would cause a mechanical upward pressure on
interest rates (‘crowding out’)’ (Ciocca and Nardozzi 1996: 109). Cebula and Rhodd
(1993:443), Friedman (1992:301; 1988:174) and Cebula (1987:56) express a similar
view. Anyanwu (1998:34) found that for African countries there is a statistically significant
relationship between budget deficits and interest rates (deposit rates).
One question within this approach is whether it is high debt or large deficits that cause high
interest rates. Currently the stronger consensus seems to be that debt, rather than deficits, is
the culprit (cf. Tanzi and Fanizza 1995; Tanzi and Lutz 1993). Easterly and Schmidt-Hebbel
(1994:51) found that in countries with a low debt/GDP ratio, such as Chile and Morocco, an
increase of 1 percentage point in the deficit/GDP ratio increases the real interest rate by only
20
0.1 to 0.2 percentage points. However, in countries with high debt/GDP ratios, such as Colombia, Pakistan and Zimbabwe, an increase of 1 percentage point in the deficit causes the
real interest rate to increase by as much as 1.1 to 2.7 percentage points. They also argue
that high debt/GDP levels reduce the substitutability between public and private debt, so that
government must offer a higher interest rate to attract buyers of government securities.
In contrast, a theory based on Ricardian equivalence would predict no effect of deficits at
all: consumers realise that higher deficits imply higher future taxes and therefore raise their
own saving to exactly offset higher public deficits. ‘The implications of pure Ricardian equivalence is that total saving, and hence interest rates, are not affected by government deficits.’
(Ford and Laxton 1995: 1) In this vein, Evans (1985) found no significant impact of debt and
deficits on interest rates.
Countering this, Ford and Laxton (1995:1) argue that, given the presence of a high degree of integration between the capital markets of industrial countries, ‘…an increase in
the level of world government debt would raise the world real interest rate and, all else
equal, the interest rates in individual countries.’ Tanzi and Lutz (1993:247) express a
similar view. They find that ‘… the rise in government debt since the late 1970s has had a
substantial effect on real interest rates in these industrial countries, contrary to the Ricardian hypothesis. Between 1978 and 1993 the OECD wide net debt-GDP ratio rose from
21.2% to 39.7%, an increase of 18.5 percentage points. Based on our parameter estimates, this has boosted real interest rates by 250 to 450 basis points’ (Ford and Laxton
1995:2). This would explain most of the increase in rates observed during this period.
Sutherland (1997:160) argues that consumption decreases (and thus, saving increases)
only at high levels of debt as a result of increases in debt.
An alternative, Keynesian interpretation proposed by Ciocca and Nardozzi (1996:108–
9) points to high rates as an uncertainty and policy risk premium. Thus, for the period
1979–83 Ciocca and Nardozzi (1996:54) ascribe higher interest rate levels to a ‘… shift in
the Federal Reserve’s policy stance [that] meant uncertainty as to the higher level of interest rates needed to curb inflation in the new monetary policy regime.’ Later in the
1980s there was another cause for the uncertainty (Ciocca and Nardozzi 1996:109–10):
‘As well as creating uncertainty and concern per se, the precarious, if not worsening,
situation of public finance invests the financial markets with the fear that the monetary
policy is not supported by the budgetary policy and is thus neither safe nor credible. The
negative repercussion of an upsurge in interest rates are manifested through an increased demand for money rather than through the increased offer of government
bonds.’
Smithin (1994) propounds a reverse causality: that high real interest rates are the main
cause (rather than the consequence) of large deficits. He uses a post-Keynesian approach
that views the money supply as endogenous and interest rates as being determined by the
central bank. He also offers empirical evidence that, in the period since 1980, the interest
rate increases frequently preceded budget deficit increases: ‘The direction of causality suggested here therefore runs from concern over inflation in the wake of the inflationary decade
of the 1970s, through very high real rates of interest as a result of the attempts of key central
banks to deal with this problem via monetary policy, and on to large measured budget defi-
21
cits emerging both directly, as a result of higher financing costs, and indirectly because of the
monetary policy induced recessions’ (1994:164).
The modern mainstream view is a continuation of the classical view held by Smith, Ricardo
and Mill. The views of Malthus, Keynes, Lerner and Domar challenged the classical view and
form the foundation for an alternative view to the modern mainstream view of today held by
Galbraith and Darity and Arestis and Sawyer. Although modern mainstream literature on fiscal sustainability may devote little attention to them, authors such as Heilbroner and Bernstein (1989), Galbraith and Darity (1994) and Arestis and Sawyer (2003) use this foundation
to challenge the modern mainstream view.
5
RECURRING THEMES THAT EMERGE FROM THE 200-YEAR OLD
DEBATE
The above discussion provides an overview and definition of what constitutes a sustainable fiscal policy. The historical overview demonstrates that different views on what constitutes a sustainable fiscal policy coexisted in the past and still coexist today. This section highlights and draws out some of the recurring themes that emerge from the 200year old debate and that characterise the nature of the debate.
The first theme concerns the importance of the level of particularly domestic debt and
the effect on the rest of the economy of its repayment or the payment of interest. According to the view expounded by the Mercantilists, Lerner, Heilbroner and Bernstein and
surprisingly from the classical side, Ricardo, the level of domestic public debt is not that
important as its repayment represents nothing more than the right hand paying the left.
This does not mean that economists such as Lerner, Heilbroner and Bernstein argue for
an unbounded increase in public debt. Rather, they see debt naturally limited by the stabilisation needs of the economy. Once the economy is stabilised there is no further need
for the expansion of the public debt burden.
This contrasts with the view of Smith and modern economists such as Peacock, that
the level of (domestic) public debt is important because it influences the allocation of resources, i.e. ‘which hand holds what’ influences important economic variables such as
saving and capital accumulation. This view originated with the view of Adam Smith who
held that the payment of interest on loans represents a transfer from the holders of land
and capital goods to bondholders, the latter not being very productive members of society. The contemporary debate translates this concern of Smith into the effect of interest
payments on income distribution (cf. Vitaliano and Mazeya 1989), which, assuming that
different income groups safe at different rates, means that interest payments may influence saving via its effect on income distribution. However, to obtain a complete picture of
the impact of government on income distribution, the effect of interest payments on income distribution will have to be considered alongside the incidents of direct and indirect
taxation, as well as the effect of government expenditure and -transfers on different income groups.
22
A variation on this theme and stated in a more positive light, is the view of Malthus who
argued that public debt of a sufficient size can generate interest income that could augment ‘effectual demand’, particularly if those who receive the interest income spends it.
As such Malthus, who put forward an under-consumptionist view to explain the lack of
‘effectual demand’, saw the interest payments on public debt as a useful policy tool.
A second theme is more recent in origin, stemming from Keynes and those thinking along
similar lines. It concerns the ability of government to stimulate the economy and especially
economic growth to ensure full employment. There are three lines of thought on this second
theme so that debate is not a clear-cut two-sided issue. Supporters of the first line place their
trust in the size of the income multiplier to enable government through a deficit policy to raise
the real economic growth rate so that it could exceed the real interest rate. This negative (r –
g) gap would justify the primary deficit that initially was needed to spur the growth rate and
allows government to run further primary deficits in future. However, supporters of this line of
thought are classified into two groups. The first group holds that government can and should
stimulate and maintain the real economic growth rate above the real interest rate over a prolonged period of time, usually longer than a business cycle, thereby creating a long-run
negative (r – g) gap. (In addition to a larger deficit, government, according to proponents of
this view, may also reduce the real interest rate.) This long-run negative (r – g) gap will enable government to run a primary deficit at any given moment during the business cycle,
even when the cycle is at its peak. The view of Domar falls within this group.
The second group focuses more on the cyclical ability of government to raise the real
growth rate above the real interest rate. Thus, when the economy enters a slump so that the
real economic growth rate falls below the real interest rate, government should run a larger
primary deficit and thereby stimulate the real economic growth rate to such an extent that it
exceeds the real interest rate. Arestis and Sawyer seem favourable to this option. Again, the
validity of this view depends on the size of the income multiplier. However, what is required
from the multiplier is not as demanding as is the case with the first group. It should merely lift
the real growth rate temporarily above the real interest rate (while the latter could be reduced
by the central bank).
Supporters of another, second line of thought do not put their trust in the size of the income multiplier to attain a negative (r – g) gap. In addition, not only do they doubt the ability
of government to create a negative (r – g) gap, but they also, particularly those following the
modern mainstream view, argue that it is not prudent policy for the real interest rate to be
lower than the real economic growth rate. They also contest the ability of government to
maintain the economic growth rate at such a high level for a prolonged period of time. Thus,
to supporters of this line this means that government should not attempt to influence the
growth rate and should steer clear of an anti-cyclical policy, particularly if such a policy also
involves problems such as long internal policy lags and the development of a deficit bias on
the part of government.
However, there are those, in a third line of thought, who also doubt the size of the income
multiplier and hence, the ability of government to stimulate the economic growth rate, but
who nevertheless believe that government can vary the deficit to support employment and
output levels. This is merely the view that if there is a positive (r – g) gap and should the
economy fall into a slump, government can run a larger primary deficit so as to prop up cor23
porate profits, employment and economic growth (even thought the growth rate remains below the interest rate) and provide companies with a window of time to reorganise and im prove their balance sheets. Since these economists hold that the (r – g) gap may remain
positive despite a stimulating fiscal policy, their view means that a (primary) deficit policy to
support the economy will result in an increasing public debt/GDP ratio. Thus, government will
have to alternate periods where it runs a primary deficit that causes the public debt/GDP ratio
to increase with periods where it runs a primary surplus to reduce the public debt/GDP ratio.
This implies the use of stabilisation policy even though the policy places no trust in the multiplier per se. In addition, this policy merely proposes that the government runs a sufficiently
sized primary surplus on average, presum ably over the course of the business cycle.
A third theme emerging from the 200-year old debate concerns the importance of government dissaving. To various degrees and with an increasing level of sophistication, economist
such as Smith, Mill and several modern economists argue that government dissaving causes
crowding out. By linking the government dissaving to fiscal unsustainability, it can be shown
(section 1.2 above) that government dissaving also means that fiscal policy is unsustainable.
However, also on this theme economists such as Galbraith and Darity (1994) and Arestis
and Sawyer (2003) argue that government expenditure might not crowd out, but rather crowd
in investment. As in the case of the second theme, the dissaving might be justified through
the possible positive effects of the higher (crowded in) investment and government expenditure on economic growth and the level of GDP. A higher growth rate causes, ceteris paribus,
the (r – g) gap to decrease, or even to turn negative, so that the required primary surplus
decreases or itself turns negative. In addition, a higher GDP level means a decrease in the
public debt/GDP and primary balance/GDP ratios, simply because GDP constitutes the denominator in these ratios.
6
CONCLUSION: THE ORIGIN, DEVELOPMENT AND NATURE OF THE
DEBATE
The above overview of the origin and historical development of the debate shows that the
nature of the debate about fiscal sustainability is more than an ongoing positing of views by
two monolithic and unchanging sides. Indeed, there is a range of views, some more closely
related than others and some representing some ‘cross-breeding’ of views. As such the debate about fiscal sustainability resembles more an evolutionary development and proliferation of views, with, at times, some views dominant, some stronger and some weaker.
In addition, developments in the debate on several occasions resulted from real world experience. For instance both in the 1940s and 1980-90s renewed theoretical and empirical
interest in issues relating to government solvency originated from what some construed to be
exceedingly high levels of government debt. In general, the level of concern about issues
such as the level of public debt and dissaving is influenced by and positively correlated with
the actual movements of public debt over time. As such, the debate reacts to its environment
and also influences its environment. Whether this reaction and influence is for the better is
precisely the question under debate.
24
The paper also demonstrates that fiscal sustainability is a complex, multifaceted issue.
Concern about these facets gives rise to recurrent themes that sometimes cause heated debate. Even though many of the questions are settled in the minds of many of the individual
participants to the debate, the overall settling of the debate seems elusive given the level of
conviction with which proponents of the different views convey their message. Thus, we may
expect the continuation of the debate, watching for new themes to emerge and others to recur, particularly in periods when public debt, according to some participants to the debate,
seems to get out of hand.
25
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30
APPENDIX 1
Should government want to prevent an increase in the debt/GDP ratio, equations 1, 2.1 and
2.2 demonstrate the necessity for government to run a primary surplus when r > g. When r <
g they describe the ability of government to run a primary deficit without a concomitant increase in the debt/GDP ratio. Assume that in period t–1 public debt equals 50, GDP equals
100 and economic growth in period t equals 5%. Four scenarios are presented. In scenario 1
the interest rate equals 8% and government runs a primary surplus large enough to prevent
an increase in the debt/GDP ratio. In the second scenario the interest rate also equals 8%,
while government runs a primary deficit. In the third and fourth scenarios the real interest rate
equals 2%. In the third scenario government runs a primary deficit, whereas in the fourth scenario it runs a primary surplus.
Scenario 1
In this case government runs a primary surplus of 1.5.
∆Dgt /Yt ≡ (rgt – gt )Dgt–1/Yt + Bgt /Yt
= (0.08 – 0.05)50/105 – 1.5/105
=0
In this case the primary surplus is large enough to prevent an increase in the debt/GDP ratio.
To reduce the ratio, government must run a primary surplus that is larger than the one
needed to prevent an increase in the ratio. Note also that the primary surplus required to
prevent an increase in the debt/GDP ratio equals 1.5/105, which equals 0.01429 or approximately 1.4% of GDP.
Scenario 2
In scenario 2 government runs a primary deficit of 1.5.
∆Dgt /Yt = (0.08 – 0.05)50/105 + 1.5/105
= 0.029
The primary deficit causes the debt ratio to increase from 0.5 in period t–1 to 0.529 in period
t (0.5 + 0.029 = 0.529). Thus, when the real interest rate exceeds the real growth rate and
government runs a primary deficit, the debt/GDP ratio increases. However, as scenario 3
demonstrates, this is not the case when the real interest rate falls short of the growth rate.
Scenario 3
In scenario 3 government also runs a primary deficit of 1.5.
∆Dgt /Yt = (0.02 – 0.05)50/105 + 1.5/105
= 0
Scenario 4
Should government run a primary surplus when the real interest rate falls short of the real
growth rate, the debt/GDP ratio decreases.
∆Dgt /Yt = (0.02 – 0.05)50/105 – 1.5/105
= – 0.029
31
Thus, the debt/GDP ratio decreases from 0.5 in period t–1 to 0.471 in period t (0.5 – 0.029 =
0.471).
APPENDIX 2
The above can be illuminated by means of an example. Assume that the real interest rate
equals 8%, the growth rate 5%, debt and GDP in period t–1 equals 50 and 100 respectively. The primary surplus equals 1.5. Government used debt-finance in the past only to
finance capital and thus, the public capital stock equals 50. Should government grow the
public capital stock at a rate equal to the growth rate, government investment equals 2.5
(that is: 0.05(50)). With a primary surplus of 1.5 and government investment of 2.5, the
non-interest current surplus equals 4 (1.5 + 2.5). Thus, equation 5 is:
∆Dgt /Yt ≡ (rgt – gt )Dgt –1/Yt + Cgt /Yt + gK gt–1 /Yt
= (0.08 – 0.05)50/105 – 4/105 + 2.5/105
=0
In this case government is not dissaving as 0.08(50)/105 – 4/105 (which is rgtDgt–1/Yt + Cgt /Yt
= current deficit as percentage of GDP) equals zero. However, if the non-interest current surplus was smaller government is dissaving. For example, if the non-interest current surplus
equals 3.5, the current deficit equals 0.08(50)/105 – 3.5/105 = 0.5/105. The debt/GDP ratio
will increase with the same amount as the current deficit/GDP ratio.
32
Bisher erschienene
“Berichte aus dem Weltwirtschaftlichen Colloquium”
des Instituts für Weltwirtschaft und Internationales Management
(Downloads: http://www.iwim.uni-bremen.de/publikationen/pub -blue)
Nr. 1 Sell, Axel:
Staatliche Regulierung und Arbeitslosigkeit im internationalen Sektor, 1984. 35 S.
Nr. 2 Menzel, Ulrich/Senghaas, Dieter:
Indikatoren zur Bestimmung von Schwellenländern. Ein Vorschlag zur Operationalisierung, 1984. 40
S.
Nr. 3 Lörcher, Siegfried:
Wirtschaftsplanung in Japan, 1985. 19 S.
Nr. 4 Iwersen, Albrecht:
Grundelemente der Rohstoffwirtschaftlichen Zusammenarbeit im RGW, 1985. 52 S.
Nr. 5 Sell, Axel:
Economic Structure and Development of Burma, 1985. 39 S.
Nr. 6 Hansohm, Dirk/ Wohlmuth, Karl:
Transnationale Konzerne der Dritten Welt und der Entwicklungsprozeß unterentwickelter Länder,
1985. 38 S.
Nr. 7 Sell, Axel:
Arbeitslosigkeit in Industrieländern als Folge struktureller Verhärtungen, 1986. 21 S.
Nr. 8 Hurni, Bettina:
EFTA, Entwicklungsländer und die neue GATT-Runde, 1986. 28 S.
Nr. 9 Wagner, Joachim:
Unternehmensstrategien im Strukturwandel und Entwicklung der internationalen Wettbewerbsfähigkeit, 1986. 28 S.
Nr. 10 Lemper, Alfons:
Exportmarkt Westeuropa. Chinas Vorstoß auf die Weltmärkte, 1987. 40 S.
Nr. 11 Timm, Hans-Jürgen:
Der HWWA-Index der Rohstoffpreise - Methodik, Wirtschafts- und Entwicklungs politische Bedeutung,
1987. 57 S.
Nr. 12 Shams, Rasul:
Interessengruppen und entwicklungspolitische Entscheidungen, 1987. 23 S.
Nr. 13 Sell, Axel:
ASEAN im Welthandelskraftfeld zwischen USA, Japan und EG, 1987. 23 S.
Nr. 14 Kim, Young-Yoon/Lemper Alfons:
Der Pazifikraum: Ein integrierter Wirtschaftsraum? 1987. 24 S.
Nr. 15 Sell, Axel:
Feasibility Studien für Investitionsprojekte, Problemstruktur und EDV -gestützte Planungsansätze,
1988. 18 S.
Nr. 16 Hansohm, Dirk/ Wohlmuth, Karl:
Sudan´s Small Industry Development. Structures, Failures and Perspectives, 1989. 38 S.
33
Nr. 17 Borrmann, Axel/ Wolff, Hans-Ulrich:
Probleme bei der Planung industrieller Investitionen in Entwicklungsländern, 1989. 28 S.
Nr. 18 Wohlmuth, Karl:
Structural Adjustment and East-West-South Economic Cooperation: Key Issues, 1989. 53 S.
Nr. 19 Brandtner, Torsten:
Die Regionalpolitik in Spanien unter besonderer Berücksichtigung der neuen Verfassung von 1978
und des Beitritts in die Europäische Gemeinschaft, 1989. 40 S.
Nr. 20 Lemper, Alfons:
Integrationen als gruppendynamische Prozesse. Ein Beitrag zur Neuorientierung der Integrationstheorie, 1990. 47 S.
Nr. 21 Wohlmuth, Karl:
Die Transformation der osteuropäischen Länder in die Marktwirtschaft - Marktentwicklung und Kooperationschancen, 1991. 23 S.
Nr. 22 Sell, Axel:
Internationale Unternehmenskooperationen, 1991. 12 S.
Nr. 23 Bass, Hans-Heinrich/Li, Zhu:
Regionalwirtschafts- und Sektorpolitik in der VR China: Ergebnisse und Perspek tiven, 1992. 28 S.
Nr. 24 Wittkowsky, Andreas:
Zur Transformation der ehemaligen Sowjetunion: Alternativen zu Schocktherapie und Verschuldung,
1992. 30 S.
Nr. 25 Lemper, Alfons:
Politische und wirtschaftliche Perspektiven eines neuen Europas als Partner im internationalen Handel, 1992. 17 S.
Nr. 26 Feldmeier, Gerhard:
Die ordnungspolitische Dimension der Europäischen Integration, 1992. 23 S.
Nr. 27 Feldmeier, Gerhard:
Ordnungspolitische Aspekte der Europäischen Wirtschafts- und Währungsunion, 1992. 26 S.
Nr. 28 Sell, Axel:
Einzel- und gesamtwirtschaftliche Bewertung von Energieprojekten. - Zur Rolle von Wirtschaftlichkeitsrechnung, Cost-Benefit Analyse und Multikriterienverfahren-, 1992. 20 S.
Nr. 29 Wohlmuth, Karl:
Die Revitalisierung des osteuropäischen Wirtschaftsraumes - Chancen für Europa und Deutschland
nach der Vereinigung, 1993. 36 S.
Nr. 30 Feldmeier, Gerhard:
Die Rolle der staatlichen Wirtschaftsplanung und -programmierung in der Europäischen Gemeinschaft, 1993. 26 S.
Nr. 31 Wohlmuth, Karl:
Wirtschaftsreform in der Diktatur? Zur Wirtschaftspolitik des Bashir-Regimes im Sudan, 1993. 34 S.
Nr. 32 Shams, Rasul:
Zwanzig Jahre Erfahrung mit flexiblen Wechselkursen, 1994. 8 S.
Nr. 33 Lemper, Alfons:
Globalisierung des Wettbewerbs und Spielräume für eine nationale Wirtschaftspolitik, 1994. 20 S.
Nr. 34 Knapman, Bruce:
The Growth of Pacific Island Economies in the Late Twentieth Century, 1995. 34 S.
34
Nr. 35 Gößl, Manfred M./Vogl. Reiner J.:
Die Maastrichter Konvergenzkriterien: EU-Ländertest unter besonderer Berücksichtigung der Interpretationsoptionen, 1995. 29 S.
Nr. 36 Feldmeier, Gerhard:
Wege zum ganzheitlichen Unternehmensdenken: „Humanware“ als integrativer Ansatz der Unternehmensführung, 1995. 22 S.
Nr. 37 Gößl, Manfred M.:
Quo vadis, EU? Die Zukunftsperspektiven der europäischen Integration, 1995. 20 S.
Nr. 38 Feldmeier, Gerhard/Winkler, Karin:
Budgetdisziplin per Markt oder Dekret? Pro und Contra einer institutionellen Festschreibung bindender
restriktiver Haushaltsregeln in einer Europäischen Wirtschafts- und Währungsunion, 1996. 28 S.
Nr. 39 Feldmeier, Gerhard/Winkler, Karin:
Industriepolitik à la MITI - ein ordnungspolitisches Vorbild für Europa?, 1996. 25 S.
Nr. 40 Wohlmuth, Karl:
Employment and Labour Policies in South Africa, 1996. 35 S.
Nr. 41 Bögenhold, Jens:
Das Bankenwesen der Republik Belarus, 1996. 39 S.
Nr. 42 Popov, Djordje:
Die Integration der Bundesrepublik Jugoslawien in die Weltwirtschaft nach Aufhebung der Sanktionen
des Sicherheitsrates der Vereinten Nationen, 1996. 34 S.
Nr. 43 Arora, Daynand:
International Competitiveness of Financial Institutions: A Case Study of Japanese Banks in Europe,
1996. 55 S.
Nr. 44 Lippold, Marcus:
South Korean Business Giants: Organizing Foreign Technology for Economic Development, 1996.
46 S.
Nr. 45 Messner, Frank:
Approaching Sustainable Development in Mineral Exporting Economies: The Case of Zambia, 1996.
41 S.
Nr. 46 Frick, Heinrich:
Die Macht der Banken in der Diskussion, 1996. 19 S.
Nr. 47 Shams, Rasul:
Theorie optimaler Währungsgebiete und räumliche Konzentrations- und Lokalisationsprozesse, 1997.
21 S.
Nr. 48 Scharmer, Marco:
Europäische Währungsunion und regionaler Finanzausgleich - Ein politisch verdrängtes Problem,
1997. 45 S.
Nr. 49 Meyer, Ralf/Vogl, Reiner J.:
Der „Tourismusstandort Deutschland“ im globalen Wettbewerb, 1997. 17 S.
Nr. 50 Hoormann, Andreas/Lange-Stichtenoth, Thomas:
Methoden der Unternehmensbewertung im Akquisitionsprozeß - eine empirische Analyse -, 1997. 25
S.
Nr. 51 Gößl, Manfred M.:
Geoökonomische Megatrends und Weltwirtschaftsordnung, 1997. 20 S.
35
Nr. 52 Knapman, Bruce/Quiggin, John:
The Australian Economy in the Twentieth Century, 1997. 34 S.
Nr. 53 Hauschild, Ralf J./Mansch, Andreas:
Erfahrungen aus der Bestandsaufnahme einer Auswahl von Outsourcingfällen für Logistik-Leistungen,
1997. 34 S.
Nr. 54 Sell, Axel:
Nationale Wirtschaftspolitik und Regionalpolitik im Zeichen der Globalisierung - ein Beitrag zur Standortdebatte in Bremen, 1997. 29 S.
Nr. 55 Sell, Axel:
Inflation: does it matter in project appraisal, 1998. 25 S.
Nr. 56 Mtatifikolo, Fidelis:
The Content and Challenges of Reform Programmes in Africa - The Case Study of Tanzania, 1998.
37 S.
Nr. 57 Popov, Djordje:
Auslandsinvestitionen in der BR Jugoslawien, 1998. 32 S.
Nr. 58 Lemper, Alfons:
Predöhl und Schumpeter: Ihre Bedeutung für die Erklärung der Entwicklung und der Handelsstruktur
Asiens. 1998. 19 S.
Nr. 59 Wohlmuth, Karl:
Good Governance and Economic Development. New Foundations for Growth in Africa. 1998. 90 S.
Nr. 60 Oni, Bankole:
The Nigerian University Today and the Challenges of the Twenty First Century. 1999. 36 S.
Nr. 61 Wohlmuth, Karl:
Die Hoffnung auf anhaltendes Wachstum in Afrika. 1999. 28 S.
Nr. 62 Shams, Rasul:
Entwicklungsblockaden: Neuere theoretische Ansätze im Überblick. 1999. 20 S.
Nr. 63 Wohlmuth, Karl:
Global Competition and Asian Economic Development. Some Neo-Schumpeterian Approaches and
their Relevance. 1999. 69 S.
Nr. 64 Oni, Bankole:
A Framework for Technological Capacity Building in Nigeria: Lessons from Developed Countries.
1999. 56 S.
Nr. 65 Toshihiko, Hozumi:
Schumpeters Theorien in Japan: Rezeptionsgeschichte und gegenwärtige Bedeutung. 1999. 22 S.
Nr. 66 Bass, Hans H.:
Japans Nationales Innovationssystem: Leistungsfähigkeit und Perspektiven. 1999. 24 S.
Nr. 67 Sell, Axel:
Innovationen und weltwirtschaftliche Dynamik – Der Beitrag der Innovationsforschung nach Schumpeter. 2000. 31 S.
Nr. 68 Pawlowska, Beata:
The Polish Tax Reform. 2000. 41 S.
Nr. 69 Gutowski, Achim:
st
PR China and India – Development after the Asian Economic Crisis in a 21 Century Global Economy.
2001. 56 S.
36
Nr. 70 Jha, Praveen:
A note on India's post-independence economic development and some comments on the associated
development discourse. 2001. 22 S.
Nr. 71 Wohlmuth, Karl:
Africa’s Growth Prospects in the Era of Globalisation: The Optimists versus The Pessimists. 2001. 71
S.
Nr. 72 Sell, Axel:
Foreign Direct Investment, Strategic Alliances and the International Competitiveness of Nations. With
Special Reference on Japan and Germany. 2001. 23 S.
Nr. 73 Arndt, Andreas:
Der innereuropäische Linienluftverkehr - Stylized Facts und ordnungspolitischer Rahmen. 2001. 44 S.
Nr. 74 Heimann, Beata:
Tax Incentives for Foreign Direct Investment in the Tax Systems of Poland, The Netherlands, Belgium
and France. 2001. 53 S.
Nr. 75 Wohlmuth, Karl:
Impacts of the Asian Crisis on Developing Economies – The Need for Institutional Innovations. 2001.
63 S.
Nr. 76 Heimann, Beata:
The Recent Trends in Personal Income Taxation in Poland and in the UK. Crisis on Developing
Economies – The Need for Institutional Innovations. 2001. 77 S.
Nr. 77 Arndt, Andreas:
Zur Qualität von Luftverkehrsstatistiken für das innereuropäische Luftverkehrsgebiet. 2002. 36 S.
Nr. 78 Frempong, Godfred:
Telecommunication Reforms – Ghana’s Experience. 2002. 39 S.
Nr. 79 Kifle, Temesgen:
Educational Gender Gap in Eritrea. 2002. 54 S.
Nr. 80 Knedlik, Tobias / Burger, Philippe:
Optimale Geldpolitik in kleinen offenen Volkswirtschaften – Ein Modell. 2003. 20 S.
Nr. 81 Wohlmuth, Karl:
Chancen der Globalisierung – für wen?. 2003. 65 S.
Nr. 82 Meyn, Mareike:
Das Freihandelsabkommen zwischen Südafrika und der EU und seine Implikationen für die Länder
der Southern African Customs Union (SACU). 2003. 34 S.
Nr. 83 Sell, Axel:
Transnationale Unternehmen in Ländern niedrigen und mittleren Einkommens. 2003. 13 S.
Nr. 84 Kifle, Temesgen:
Policy Directions and Program Needs for Achieving Food Security in Eritrea. 2003. 27 S.
Nr. 85 Gutowski, Achim:
Standortqualitäten und ausländische Direktinvestitionen in der VR China und Indien. 2003. 29 S.
Nr. 86 Uzor, Osmund Osinachi:
Small and Medium Enterprises Cluster Development in South-Eastern Region of Nigeria. 2004. 35 S.
Nr. 87 Knedlik, Tobias:
Der IWF und Währungskrisen – Vom Krisenmanagement zur Prävention. 2004. 40 S.
37
Nr. 88 Riese, Juliane:
Wie können Investitionen in Afrika durch nationale, regionale und internationale Abkommen gefördert
werden? 2004. 67 S.
Nr. 89 Meyn, Mareike:
The Export Performance of the South African Automotive Industry. New Stimuli by the EU-South Africa
Free Trade Agreement? 2004, 61 S.
Nr. 90 Kifle, Temesgen:
Can Border Demarcation Help Eritrea to Reverse the General Slowdown in Economic Growth? 2004,
44 S.
Nr. 91 Wohlmuth, Karl:
The African Growth Tragedy: Comments and an Agenda for Action. 2004, 56 S.
Nr. 92 Decker, Christian / Paesler, Stephan:
Financing of Pay-on-Production-Models. 2004, 15 S.
Nr. 93 Knorr, Andreas / Žigová, Silvia
Competitive Advantage Through Innovative Pricing Strategies – The Case of the Airline Industry.
2004, 21 S.
Nr. 94 Sell, Axel:
Die Genesis von Corporate Governance. 2004, 18 S.
Nr. 95 Yun, Chunki
Japanese Multinational Corporations in East Asia: Status Quo or Sign of Changes? 2005, 57 S.
Nr. 96 Knedlik, Tobias:
Schätzung der Monetären Bedingungen in Südafrika. 2005, 20 S.
Nr. 97 Burger, Philippe
The transformation process in South Africa: What does existing data tell us? 2005, 18 S.
Nr. 98 Burger, Philippe
Fiscal sustainability: the origin, development and nature of an ongoing 200-year old debate, 32 S.
38